Strategy for the Telecommunications, Media and Technology industries

The future of subscriptions

Last week Spotify filed for listing. The world’s largest music streaming business is looking to IPO which is likely not only to increase the profile of the business but also heighten scrutiny of its business model. Much has been written about the sustainability of Spotify and SVOD services in general. Spotify has both an ad-supported business model and a premium subscription service which makes it more akin to YouTube than Netflix, which it often gets compared to. With the increased scrutiny of streaming business models its worth considering what the future of media subscriptions might be – what’s currently happening and where it may end up.

Subscriptions now

Deloitte’s Telecommunication, Media and Technology Predictions for 2018 predicts that by end of 2018, 50% of adults in developed countries will have at least two online-only media subscriptions, and by the end of 2020 that average will have doubled to four. The heaviest users (1 in 5 adults in developed countries) will spend over $1200 annually on subscriptions for content including TV, movies, music, news and magazines. This is not new behavior – subscriptions in a more analogue world (newspapers, magazines, etc.) declined in the online revolution of the 1990s as people accessed more content for free. However, digital has seen a renewed rise in subscriptions due to a few key drivers:

Consumers have realised that not all content is equal and premium content comes at a price. This is particularly true in the age of fake news

Technology has advanced access to digital services, making it easier through speed, quality of experience and depth of libraries/back-cataloagues

Increased penetration of power mobile technology and better networks has made on-the-go consumption possible

Subscriptions often enable the avoidance of advertising (to various degrees)

In a world where digital advertising revenues have been declining for some content, subscriptions models have been adopted to complement advertising

Subscription revenue is good news for media, but still very modest – low 10s of billions globally, compared with TV ad revenue which is $70b in US alone. The media industry cannot rely on online subscriptions alone, even if for some media companies this option does bring in the majority of their digital revenue. Media must also remain focused on advertising – but with ad formats and an ad load appropriate to its customer base.

As the prediction above foresees, we are likely to see a proliferation of new subscription models in the near future. This brings the question of what this may look like for consumers and providers of content/services.

Subscription of the future – the ‘micro-subscription’

When thinking of the future of subscriptions it is important to acknowledge that at the heart of the evolution of the model is the customer experience. A focus on the customer, rather than the transaction, product or the enabling technology, is the driving force of subscription models and their application.

How will people consume media in the future? What will their viewing/listening experience be like? A scan of services in the market gives us some clues. We are starting to see the growth of OTT content aggregator services which set out to give the customer the most content possible, when they want it. For example, YouTube TV (not yet available in Australia) is an example of possible viewing experience of the future. The service (currently $35/month) aggregates channels (and therefore content), much the same as a cable provider, offering additional subscriptions for niches (e.g. soccer fans). FetchTV in Australia also has a similar aggregation offer allowing it to remain content agnostic.

Outside of the content offering, the interface for the consumer will also play a role for these services. An aggregator like YouTube TV could neatly tie into the Google Home interface where a user could simply ask ‘Hey Google, show me last night’s NBA game’ and the content would then be beamed to the TV or device. It is unlikely that one service will have all the content available for its basic subscription package, however you can imagine a world where a ‘micro subscription’ would be available for a user to gain access to content not on the platform: ‘I’m sorry, last night’s game is not available, would you like to purchase a subscription for the game and the rest of the game for the month?’. It is possible that we will see these aggregator services cut more deals with content providers or rights holders to enable content to be shown on their platform (for a price). This would lead to a situation when Amazon Prime shows all NFL games on its platform but on YouTube TV you cannot get all games for the basic subscription meaning micro-subscriptions are available for certain games/teams.

Deloitte’s prediction is highlighting the growth in the number of subscriptions media consumers will have in the future. This aligns to the idea of a proliferation of micro-subscriptions to compliment basic OTT service subscriptions. For this to be true there will also need to be a growth in the ‘share of wallet’ subscription services command – how much a consumer is willing to pay for the content they wish to watch… watch this space!